March 26 (Bloomberg) -- Tokyo Steel Manufacturing Co. and producers including Fuji Heavy Industries face a cut in summer power supply of about 15 percent after Japan’s strongest earthquake knocked out generators, curbing growth in the world’s third-largest economy.
The 9-magnitude temblor and tsunami on March 11 crippled Tokyo Electric Power Co.’s Fukushima Dai-Ichi atomic plant, triggering the world’s worst nuclear crisis since Chernobyl in 1986, and limiting electricity supply to the country’s most industrialized area. The utility known as Tepco began rolling blackouts for Tokyo and its surroundings after the disaster.
Tokyo Steel, the country’s largest electric-furnace mill, is shifting production to plants in western Japan after its Utsunomiya factory 140 kilometers (87 miles) north of Tokyo was shut because of quake damage and power disruption. “The factory won’t be fully operational even after production resumes because of blackouts,” Managing Director Naoto Ohori said March 22.
Bank of America Merrill Lynch cut its gross domestic product growth estimate for the year starting April 1, while Morgan Stanley MUFG Securities Co. forecast power outages may cause second-quarter GDP to shrink at an annualized pace of as much as 12 percent.
Tepco can supply 38,500 megawatts of electricity as of March 24 and plans to boost its capacity to 46,500 megawatts by the end of July through buying supply from other utilities and opening idled thermal plants, it said in a statement on its website. It expects a daily shortage of 8,500 megawatts this summer as it estimates seasonal demand will peak at about 55,000 megawatts, it said.
“The economy is increasingly likely to contract in the second quarter,” said Ryohei Kasahara, an economist at Daiwa Institute of Research in Tokyo. Daiwa Institute expects power shortages to cut Japan’s GDP about 0.2 percent in fiscal 2011.
Bank of America Merrill Lynch cut its growth estimate for the year to 1 percent from 1.7 percent.
Japan’s government estimated the damage from the earthquake and tsunami at as much as 25 trillion yen ($309 billion), almost four times that caused by Hurricane Katrina in the U.S. At least 10,000 people were killed and more than 140,000 buildings damaged, according to Japan’s National Police Agency.
The destruction will push down GDP by as much as 2.75 trillion yen for the year starting April 1, according to a March 23 government report. The figure doesn’t take into account the effects of possible power outages.
The earthquake shut about 11 percent of Japan’s generating capacity, according to estimates from Goldman Sachs Group Inc. Among the idled plants is Tepco’s 4,700-megawatt Fukushima Dai-Ichi nuclear complex, where engineers are battling to contain radiation leaks after the station was swamped by a tsunami and lost the ability to cool reactors and spent fuel rods.
Tepco serves 28.62 million customers in Tokyo and eight surrounding prefectures in Japan’s Kanto region, according to its website. The region, which includes the cities of Chiba, Yokohama, Kawasaki and Omiya, accounts for 35 percent of Japan’s population and 39 percent of its gross domestic product, according to Cabinet Office figures from 2007, the most recent data available on prefectures and regions.
Industrial users accounted for 27 percent of Tepco’s electricity sales in 2009 and residential users 73 percent, data on the company’s website show.
Fuji Heavy Industries relies on Tepco power for all its facilities that produce vehicles. Its plant in the U.S. is operating at maximum capacity “so shifting production is not an option for us,” spokesman Kenta Matsumoto said. “No decisions have been made on what we will do if there are power outages in the summer.”
Toyota Motor Corp, the world’s biggest carmaker, said March 22 that all domestic car assembly will be stopped until March 26. It is cutting electricity consumption by switching off lights at its head office in Bunkyo-ku, spokesman Paul Nolasco said. The company has yet to say what its plans are in the event of summer outages.
Honda Motor Co. Ltd. is prioritizing restarting production at its damaged research and development facility in Tochigi and “is not yet at a point to figure out what to do about summer blackouts,” spokeswoman Ando Akemi said.
Masamitsu Sakurai, head of the Japan Association of Corporate Executives, or Keizai Doyukai, proposed that power shortages be tackled by setting a ceiling of total power consumption to make it easier for companies to make plans for factory operations.
The structure of Japan’s power grid limits the rechanneling of power from one region to another because of different operating frequencies. Utilities in eastern Japan, which include Tepco and Tohoku Electric Power Co., produce at a frequency of 50 hertz, while the western part generates at 60 hertz, the Federation of Electric Power Companies said.
This difference limits power transference from west to east, according to a March 14 statement posted on the federation’s website. “We need to convert frequency to send power from western Japan to eastern Japan. However, the capacity of convertors is limited,” according to the statement.